Air Canada’s current situation
Currently, the company is moving forward as best it can in the current situation. The company has reduced routes, as well as its workforce, and it is still to see how these reductions are reflected in the company’s returns. By reducing that much staff, Air Canada should at least be able to keep salary expenses to a minimum, ideally half of what they were previously.
Otherwise, it would mean that the downsizing is not uniform across all areas (more low-paid employees have been made redundant).
Air Canada has improved its liquidity and accumulated sufficient liquidity to do so with low operational capacity. Other than the usual cuts where Air Canada would bleed money, there is always a reimbursement problem. Of three Canadian airlines, Air Canada is the only one that stubbornly clings to the decision not to reimburse aviators whose flights originate in Canada.
Now Air Transat canceled all of its flights from Western Canada to the United States and announced it would reimburse its airmen. The policy is clear to aviators who had tickets for routes that Transat may not take in the near future. For routes where there are alternatives, Air Transat offers flight credits. The company also delayed its takeover of Air Canada.
Can It Make You Rich?
Air Canada has a glorious past and an unfortunately bleak future. The company has historically implemented strict restrictions on air travel that include quarantine and isolation requirements for travelers. It prevents many potential travelers, especially those from Europe, from coming to Canada. Even European airlines are urging Canada to remove problematic air travel restrictions and restore safe travel.
But the fact that more international flights arrive in the country with the unwanted gift of COVID-19 (34 in the past two weeks) will likely prevent the Canadian government from showing leniency on travel restrictions. And until international travel, which generates approximately 70% of Air Canada’s revenue, is not properly restored or is on some recovery path, it could continue to suffer.
Take away idea
Two other factors that can improve or destroy the likelihood that Air Canada will recover and enrich its investors are a second wave and a vaccine, respectively. If new cases or deaths start to rise again, travel restrictions could continue and the airline, even with all cost-cutting initiatives in place, keep on bleeding. A vaccine, on the other hand, can improve travelers’ confidence.
Silly contributor Adam Othman has no position in any of the stocks mentioned.